Lean Processes: Growing economy but recessionary mindset

Contributor:  Diana Davis
Posted:  01/28/2011  12:00:00 AM EST
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Doing more with less was the mantra at many companies during the depths of the recession. But as developed economies move sloth-like towards growth in 2011, doing a lot more with the same level of resources is the emerging slogan for many a process improvement program.

Process improvement looks set to be - to borrow a phrase from street vendors in South East Asia - “same, same but different.”

The backdrop to this challenge is a world economy that is fast seeing a divide between the growth of emerging markets and developed economies. In an update to its World Economic Outlook earlier this week the IMF revised its global predictions for growth upwards to 4.4% after “stronger-than-expected activity” although the overall figure belies a growing divide: developed economies, including the US, Japan and Europe, are forecast to grow 2.5% annually in 2011 and 2012, while emerging markets (including China and India) are forecast to grow at annual rate of 6.5%.

At IQPC’s recent Profit Through Process summit in Orlando, Florida, an annual gathering for process improvement professionals, many expressed a mixed view on the impact that the economic climate was going to have on continuous improvement this year.

“Growth is on the agenda,” says Bill Kane, Partner with Deloitte in the Operational Excellence Practice. “That’s going to affect lots of process – how can we get greater marketshare? How can we influence clients? I think they’ll still recognize cost as a major item on the agenda that they cannot ignore given the past year or so. But there’s a move towards growth now as opposed to cost reduction.”

Nikhil Daxani, Practice Partner for Business Performance Improvement for Wipro Consulting services agrees.

“Last year, there was more focus was on cost optimization or cost reduction,” he says.  “But as we go into the growth phase – even though the growth is slower – the focus is shifting to the top line improvement away from cost.”

But many delegates say that in their businesses, any top line improvements have to come without increasing costs.

“We’re going from needing to scale down to scaling back up,” says Bradley Fraedrich a Lean Six Sigma Master Black Belt with car manufacturer BMW.  “But from the processing standpoint - how can we continue with the levels of head count and be efficient without having to bring more people in?”

Keith Bauer, Process Engineer at Fleet Readiness Center South West – a US Navy service and maintenance center - said that the biggest challenge for them is that even as requirements are changing and demands are going up, the customer still expects that “we’re going to do the same thing for them, at the same cost, as we did last year.”

Larry Oglesby, Managing Director, Process & Innovation Service Line for Accenture Management Consulting in North America, says that this is a trend we’re going to see accelerated as changing consumer demands puts increasing pressure on companies to deliver more, in less time.

“The product lifecycle has just gotten so much faster,” he argues, citing Apple’s immensely popular iPhone, as an example of a something where consumers want the latest innovation and they want it as quickly as possible.

But, he adds, “the first mover advantage is such a smaller portion now. You hit it quick, you achieve it…but people will be catching up right away.”

The problem is that in addition to the increasing external pressures from a sluggish economy and increasingly demanding consumers, many process improvement programs are approaching what could be perhaps likened to a midlife crisis with diminishing returns are getting harder to achieve.. 

“At some point you get as good as you’re going to do, without an exponential increase in resources to buy that next level of improvement,” says Keith Bauer. “Do we want to invest for this incremental improvement? This much money? And what’s the real return on investment going to be?”

Chris Robertson, Continuous Improvement leader at global packaging firm Huhtamaki, says that one of the key challenges is finding those “opportunity projects” – the “low hanging fruits” type of challenges where the gains are relatively quick and easy to overcome.

“What’s happening is we’re having to farm a lot harder,” he says. “All the fruit’s picked and now you’ve got to go start cutting some wood.”

But many companies remain committed to the principles of continuous improvement.

At Motorola, for instance, “it’s been the improvement programs which have helped carry the organization through some of the toughest times that the company has faced” according to Boyd Owens, Senior Six Sigma Master Black Belt with company.

Motorola was split into two companies earlier this month on the back of poor performance.

JD Irving Ltd, a North American company offering a range of products and services from forestry products to shipping, has prioritized staff training in process improvement to help drive initiatives.

“We’ve been training Green Belts and Black Belts to do a lot of project work and that’s been paying off very well for us. We get 100 Green Belts trained per year, but they can only do so much. So when we have all 15,000 employees plugged in, it’s going to make a big difference,” says Paul Thistle, Process Improvement Leader with the company.

What has changed, though, according to Deloitte's Bill Kane is that companies are having to link their continuous improvement programs more directly to the financial returns that they can achieve.

“If the CFO (Chief Financial Officer) doesn’t see a return on investment then it will be shut down,” he says.

Dan Feliciano, Strategy and Change Lean Six Sigma Consultant with IBM Global Business Services Strategy and Change, adds that initiatives must be clearly linked to the overall strategy.

“Currently you see people deploying Lean Six Sigma – they pick a pet project which may or may not be strategically aligned to the organization and get some interesting results but may not be on the areas where you’re really trying to grow your businesses or cut costs,” he says.

This is forcing companies to think much harder about the types of projects that they take on. Several consultancies and technology providers at the conference argued that more strategic use of data would also help as companies come to terms with this new economic reality.

“The new world is all about performance management,” says Ian Gotts, CEO and founder of Nimbus, adding that to achieve this companies need actionable data.

“Analytics without process is like looking through the rear screen to work out where we’ve been.  What we need is analytics combined with process to give us some insights to what we should be doing moving forward,” he says.

“I think you’ll see more companies moving towards creating formal strategies that can communicate it, and balanced scorecards which will force organizations to be more aligned,” says Dan Feliciano.

Diana Davis Contributor:   Diana Davis


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